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Analysis of wheat pricing policy in Zimbabwe Kaviza, Theodora M. 1992

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ANALYSIS OF WHEAT PRICING POLICYIN ZIMBABWEbyTHEODORA MERCY KAVIZAB.Sc., Odessa Institute of National Economy, 1980M.Sc., Odessa Institute of National Economy, 1982A THESIS SUBMITTED IN PARTIAL FULFILLMENT OFTHE REQUIREMENTS FOR THE DEGREE OFMASTER OF SCIENCEinTHE FACULTY OF GRADUATE STUDIES(Department of Agricultural Economics)We accept this as conformingto the required standardTHE UNIVERSITY OF BRITISH COLUMBIASeptember 1992©Theodora Mercy KavizaIn presenting this thesis in partial fulfilment of the requirements for an advanceddegree at the University of British Columbia, I agree that the Library shall make itfreely available for reference and study. I further agree that permission for extensivecopying of this thesis for scholarly purposes may be granted by the head of mydepartment or by his or her representatives. It is understood that copying orpublication of this thesis for financial gain shall not be allowed without my writtenpermission.(SignatureDepartment of Agricultural EconomicsThe University of British ColumbiaVancouver, CanadaDate ^DE-6 (2/88)ABSTRACTIn Zimbabwe, wheat is the principal crop planted in winteroccupying about 95 percent of winter planted acreage, it is alsoone of the most tightly regulated of the controlled crops. Eventhough Zimbabwe's wheat industry is well developed by regionalstandards, domestic production has not kept pace with demandmaking imports necessary, draining scarce foreign exchange andheightening concerns about national food security.The study has reviewed how pricing policy has to dateaffected production and consumption trends of wheat. Three formsof policy intervention have been identified in the wheatindustry in Zimbabwe:The producer price of wheat is consistently set below theworld price.- A subsidy on imported wheat to the millers is maintained inorder to keep the consumer price of wheat and wheatproducts low.- The government through foreign currency controls limit theamount of wheat that can be imported into the country.Using a Nerlovian Dynamic Supply Response Model the pricesupply elasticity of wheat in Zimbabwe was estimated, and usedto construct a model of the wheat industry. The results of themodel were then used to evaluate the impact of different policyinterventions on wheat production, through policy simulation.Government policy in Zimbabwe taxes wheat producers whilesubsidising the consumers, thus current policy acts as aiidisincentive to increased output supply on the one hand, whileit encourages increased demand on the other. Although studiesfrom other countries show that wheat production is responsive toprice incentives, the results of this study however show a verylow short run price responsiveness (0.11). Thus raising producerprices, without redressing all the other factors affecting wheatproduction such as cost and availability of irrigation facil-ities, prices of substitutes etc, would have limited impact ontotal production.This study quantified the welfare effects and foreignexchange costs of current and alternative policy scenarios.Current policy in the wheat industry taxes the producers inexcess of $39 million which is partly transferred to consumersand partly to government as revenue. Imports cost the countryabout $33 million in foreign currency in addition to a consumersubsidy of $4 million. The study also showed that uncompensatedlosses accounted for $1.08 million.The question for Zimbabwe is how to create the necessaryconditions to increase price responsiveness, i.e what policychanges are necessary to increase total supply of wheat. Theoverall conclusion is that there is not a simple low cost optionto redress the situation in the wheat industry in Zimbabwe. Thesituation calls for a review of all the policy instrumentscurrently in place, in addition to external factors such as theworld price of wheat.iiiTABLE OF CONTENTSAbstract ^Table of Contents ^List of Tables List of Figures  ^viAcknowledgements  ^viiCHAPTER1.11.21.31 INTRODUCTION ^Study Objective Methodology Research Procedure ^1445CHAPTER 2 CROP PRODUCTION IN ZIMBABWE 62.1 The Role of Agriculture in Zimbabwe 62.2 Geo-Physical Regions and Agro-Ecological Regions 72.3 Climatic Conditions ^ 102.4 Crop Production in Zimbabwe 112.5 Agricultural Pricing Policy Objectives^•^•^• 132.6 Price Setting Procedures ^ 152.7 Land Distribution: Policy Implications^•^•^• 18Chapter 3 THE WHEAT INDUSTRY IN ZIMBABWE ^ 213.1 Development of the Wheat Industry: ^ 213.2 Wheat Production and Consumption Trends:^.^•^• 243.3 Policy Options for Wheat in Zimbabwe 273.4 Literature Review' ^ 30CHAPTER 4 APPLICATION OF THE NERLOVIAN SUPPLY RESPONSEMODEL TO WHEAT PRODUCTION IN ZIMBABWE^.^. . . 414.1 Explanatory Variables ^ 414.2 Model Specification 444.3 Estimation Procedures 484.4 Model Validation 554.5 Assessment of Data used ^ 564.6 Discussion of Regression Results ^ 584.7 Price Supply Elasticities ^ 604.8 Conclusions 61CHAPTER 5 POLICY SIMULATION ^ 625.1 Price Policy Analysis:^Theoretical Perspectives 625.2 Effects of Policy Intervention*^ 645.3 Policy Simulation Exercise 685.4 Sensitivity Analysis ^ 73ivCHAPTER 6 CONCLUSIONS AND POLICY IMPLICATIONS  ^756.1 Conclusions*  ^766.2 Policy Implications*  ^776.3 Issues for Future Research  83APPENDICES^  87BIBLIOGRAPHY  91VList of TablesTable 1 Production of Principal Commercial Crops .^• • 12Table 2 Wheat Production and Consumption Trends . .^• • 26Table 3 Summary Regression Results ^ 52Table 4 Model Results 53Table 5 Demand and Supply Elasticities of Wheat . .^. . 63Table 6 (1) Effects of Pricing Policy ^ 74(2) Welfare Effects ^ 74Table 7 Results of Sensitivity Analysis ^ 76viList of FiguresFig 1^Wheat Production and Consumption inZimbabwe  ^2Fig 2^Agro-ecological Regions of Zimbabwe  ^9Fig 3^Factors Influencing Productionand Consumption of Wheat  ^33Fig 4^Observed and Predicted Acreage  ^55Fig 5^Plot of Residual Errors  ^56Fig 6^Effects of Policy Intervention. ^70viiACKNOWLEDGEMENTS My sincere thanks to Dr. Mary Bohman for her invaluable supervi-sion of this thesis, Dr. Rick Barichello for helpful commentsand Dr. Peter Boothroyd for his support and faith in me.I am also grateful to Gwynne, Retha and Kathy who in manydifferent ways helped get this thesis done, and to all thefriends I made while I was in this Department.Special thanks to my husband Ronald, my son Mudhi and mydaughter Mindo, for their warmth and affection and their beliefin me. Indeed, I am forever indebted to all my family andfriends for their prayers and love.I am also grateful to the University of Zimbabwe for givingme this opportunity and to CIDA for financial support.I dedicate this thesis to the memory of my brother KennedyMasawi, may he rest in peace.In Almighty God we trust.viiiCHAPTER 11.0 INTRODUCTIONRapidly increasing demand in Zimbabwe for wheatproducts, particularly bread, has generated interest in wheatproduction and consumption policies. Agricultural policymakersface the problem of how to bridge the gap between local produc-tion and demand of wheat as shown in figure 1. Zimbabwe nowimports wheat, resulting in a drainage of scarce foreigncurrency thereby heightening concerns about national foodsecurity. An important question in the food security debate iswhether or not wheat production should be expanded. Zimbabwe'spopulation growth rate is estimated at 3.6 per cent per annumwhich is among the highest in Africa. The net effect is that theZimbabwe population will double over the next twenty years. Theaverage annual growth in volume of production in the 1980s was2.6 percent for food compared to 3.8 percent for non-foods.Productivity gains in food production have therefore been morethan offset by population growth.The threat of food shortage is further compounded by thefact that since 1982 the economy of Zimbabwe has experienced adownward trend as a result of a combination of internal factorssuch as a high population growth rate, and the drought, besidesexternal factors. The global recession and certain overseaspolicies have reduced the demand for Zimbabwe's exports,depressing foreign currency earnings, and increasing thecountry's balance of payments deficits leaving Zimbabwe with theneed to limit its dependence on imports.1Similar to the situation in many tropical countries,wheat has become a staple food in Zimbabwe, especially forurban consumers. Wheat consumption has increased as a result ofconsumers' rising incomes and interest in convenience foods andthe desire for a more diversified diet. Longmire and Byerleelhave estimated per capita consumption of wheat at 16 kilogramsper year for Sub-Saharan Africa. More importantly, governmentshave encouraged the consumption of wheat and wheat productsthrough favourable pricing policies for bread. Governmentsupported large scale investments in capital intensive millingand baking industries, have also helped expand demand for wheat.Wheat is mostly grown by large scale commercial farmers whoare sensitive to profitability considerations. This feature ofthe commercial sector makes it especially important thatpolicymakers get prices right in establishing agriculturalproduction priorities. Studies on wheat production in Zimbabwe(Longmire et al 1986)2, and studies on wheat production in thetropics, such as CIMMYT publication on "Wheat in More TropicalEnvironments"3 put low profitability as the major constraint towheat production, making pricing a major concern in consideringthe problems of increased wheat production.Byerlee D.and J. Longmire "Wheat in the Tropics Whether andWhen" CIMMYT, Mexico (1985)2 Longmire P., P.Ngobese, S. Tembo "Wheat Policy Options inZimbabwe and SADCC Countries" (1986)3 Byerlee D "Wheat in Tropical Environments" CIMMYT EconomicsProgram, Mexico (1985)21982-199083 84 85 86 87YearWheat Self-Sufficiency LevelsProduction ^ Consumption1.1 Study Objective:This study will therefore review how pricing has to dateaffected production trends in the wheat industry, how the samepricing policy if maintained will affect the industry in thefuture. Finally, the effects of alternative policy optionsfacing the wheat industry in Zimbabwe, will be simulated fortheir impact on producers and consumers, government revenue andforeign currency.The following questions will be addressed- How does the agricultural pricing policy in Zimbabweaffect wheat production and consumption?- What policy changes are necessary to resolve the "foodpolicy dilemma" which stems from the conflict ofinterest between the producers and consumers?1.2 Methodology:In order to achieve the objective of this study, the pricesupply elasticity for wheat in Zimbabwe will be estimated, whichwill be used to construct a model of the wheat industry inZimbabwe. The results of the model will be used to evaluate theimpacts of different policy interventions on wheat production.I will not estimate the demand elasticity but I will useestimates from other studies. Sensitivity analysis will be usedto explore the robustness of the policy analysis to elasticityvalues.1.3 Research ProcedureChapter 1 covers the introduction, the problem statement4and the objective of the study. Chapter 2 provides the back-ground to the agricultural sector in Zimbabwe, the geo-physicaland agro-ecological regions, the climate and the crop produc-tion.Chapter 3 reviews agricultural pricing policy and pricesetting procedures. Land distribution and its policy implica-tions will also be discussed in this chapter.Chapter 4 deals with wheat production and the policyoptions for wheat in Zimbabwe. This is followed by a review ofrelevant literature on wheat in the tropics and more specifi-cally on wheat production in Zimbabwe.Chapter 5 provides the empirical model and the data used inthis study. This is followed by the results of the estimation,and their implications.Chapter 6 provides policy simulation based on the resultsof the study, provides conclusions and offers recommendationsfor future research.5CHAPTER 22.0 CROP PRODUCTION IN ZIMBABWE2.1 The Role of Agriculture in ZimbabweAgriculture is the backbone of Zimbabwe's economy, withmore than 70 percent of the population dwelling and derivingtheir livelihood in this sector. The growth of the economy islargely conditioned by the performance of the agriculturalsector which, in addition to providing more than 90 percent ofthe food requirements of the society accounts for 41 percent oftotal merchandise exports and contributes more than 25 percentto the GDP, making it the largest contributor after manufactur-ing. It is also the largest employer of labour, providing about30 percent of total formal employment.The agricultural sector in Zimbabwe comprises three mainsub-sectors, namelyLarge Scale Commercial Sector (LSC)Small Scale Commercial Sector (SSC)Communal Farming Areas (CFA).The LSC comprises about 5 400 farmers mostly white. This sectoroccupies 4.8 million of the 8.6 million hectares potentialarable land. Land ownership in this area is under the free holdsystem. The SSC sector occupies the former African Purchase6areas4 and comprises about 9 000 black farmers occupying 1.4million hectares of which only 0.5 million hectares are poten-tially arable. The majority of this area is under free holdsystem with a small area still in the lease hold phase.The CFAs cover 16.4 million hectares of land with only 3.3million hectares arable. The area has the country's highestpopulation density with 700 000 black families living here.Land is held under the traditional tenure, i.e occupants havethe right to use but do not hold title deeds.2.2 The Geo-Physical and Agro -Ecological RegionsSituated in tropical Southeastern Africa, Zimbabwe'sprincipal geologic feature is a broad plateau that forms anelevated savanna region, or highveld through the centre of thecountry. Lower plateau regions on either side of it slope tothree river basins: the Zambezi on the northern border, theLimpopo in the South, and the Sabi in the Southeast.Zimbabwe as shown in the map (fig 2) is marked by fourregions defined primarily in terms of relief or altitude butassociated in varying degrees with bio-climatic zones. Thefirst of these is the Highveld, land between 1 200-1 500 metresextending through the centre of the country from southwest tonortheast. The second region, land between 900 and 1200 metresis the Middleveld. As the descending plateau approaches the4African Purchase Areas Land set aside for purchase by Africanswho wished to own land7northern and southern borders marked by the Zambezi and theLimpopo rivers, it becomes the Lowveld, land under 900 metres.The most extensive area of Lowveld lies in the Limpopo and Sabibasins. The land here is gently undulating with areas ofagricultural potential, limited mainly by the absence of water.The fourth region consists of the eastern highlands, which aremountainous in contrast to the plateau that characterises therest of the country. These factors therefore are key influenceson the availability of water, the types and patterns of vegeta-tion and the spatial distribution of agro-ecological zones.Zimbabwe is classified into five main "agro-ecological" or"natural regions", wherein agricultural development is condi-tioned by a variety of dominant natural characteristics. Thisagro-ecological classification provides a good guide to thenatural factors governing agricultural production. Naturalregions I, II and III are dominated by LSC farmers producingcereals such as maize, wheat, sorghum and barley in addition totobacco,cotton,oilseeds (groundnuts, soybeans and sunflower).Most Communal farming is confined to natural regions IV and V,with maize, tobacco, cotton and groundnuts as the main crops.2.3 Climatic Conditions:Although Zimbabwe lies within the tropics its altitude,relief and inland location modify the climate to create sub-tropical conditions over most of the country. The Highveld iscool while the Middle and Low velds are warm to hot during most8of the year. The Eastern Highlands experience cool humidconditions and good well dispersed rainfall. Agriculturalconditions are controlled by seasons. The cool dry season lateMay to mid August is a period of dry weather. Wheat may begrown under irrigation during this period, but low nighttemperatures and an almost total absence of rainfall preventdryland cropping. The warm dry season mid August to lateOctober is marked by a rise in temperature. The rainy seasonlate October to late March varies considerably in character overthe country.The type and distribution of rainfall is a major naturallimitation to agricultural development. Much of Zimbabwe has adry climate. The infrequent rainfall comes in heavy stormswhich cause severe erosion. The areas with the most fragileecosystems suffer from both the drought and the rainfallvariability, and only 8 percent of seasonal rainfall contributesto the annual stream flow. This small amount supplemented bylimited amounts of groundwater provides the total nationalsupply.9Fig 2^Agro-ecological Regions of ZimbabweMT . nmilinnlin.• An MIS@ OneenunliMAkAnn nntilimniernasi.nr"40np nnillannth nnMS-ISngnOVSABOOnn nnnni. nannannanS spun S••"11.12MOSS nenr.r.alit:i.i.. i."...:Fif..: mynasMOOns,AWL..7:1111SSSSOnnanliNSlignIISSInnnUMOSSCMaga onnannannn.Mange ennOnaMOOSIAlnnennegn MMMMM MSSn&rminnnOnnignilininan,Oranna=0... .NIANDS.A -nlnlymn SININESeItogionI2LE!- 4FIA5Major wheat-growing areas:Highveld and MiddleveldLowveldSource: Morris M.L. "Comparative Advantage andIncentives for Wheat Production in Zimbabwe"CIMMYT Economics Programme, Working Paper102.4 Crop Production in Zimbabwe:Crop sales to the government marketing agencies from 1980to 1990 are shown in Table I. Maize is produced by the majorityof the commercial farmers and by all the communal farmers,except in the southernmost parts of the country where moredrought tolerant millets are predominant. Production of maizehas on several occasions approached 3 million tonnes, althoughproduction variability is high because most of the crop is grownunder rain fed conditions. After maize the most important cropsin quantitative terms are cotton, wheat, tobacco, soyabeans andgroundnuts all of which are grown on both commercial andcommunal farms, except for wheat which can only be grown underirrigation and is grown only by the commercial farmers.Despite the fact that communal farmers are entering themarket in increasing numbers, most commercial agriculture inZimbabwe is still in the hands of the Large Scale Commercialfarmers featuring high levels of input use, extensivemechanisation and high levels of management.11Table I^Production of Principal Commercial Crops1980-1990Maize('000t)Wheat('000t)Cotton('000t)Tobacco('000tS/beans('000t)G/nuts('000t)Year1980 2^813.2 207.9 157.6 120.0 97.4 77.71981 2^728.6 228.2 170.6 69.4 72.9 118.81982 1 785.8 251.1 134.9 89.2 91.6 111.41983 844.0 204.7 146.5 94.0 80.6 32.81984 1 283.0 207.2 221.7 116.9 98.7 25.91985 2^952.0 176.6 274.2 107.0 87.2 66.71986 2^486.0 189.0 247.2 84.0 72.4 73.21987 958.0 241.9 237.0 84.0 94.8 75.71988 2^034.0 245.5 323.3 84.0 120.4 87.91989 1 196.8 262.5 261.4 101.0 121.0 65.61990 1 165.6 242.2 224.7 n.a 108.0 77.2%growthrates-41 16 42 9 -1* g/nuts - groundnuts, s/beans - soybeansSource: Agricultural Marketing Authority (various issues),Morris L.M. Comparative Advantage and Policy Incentivesfor Wheat Production in Zimbabwe CIMMYT working Paper122.5 Agricultural Pricing Policy ObjectivesIn its Transitional National Development Plan (1981-1985) the government outlined the main objectives of theagricultural sector as;- achievement and maintenance of food self-sufficiencyto ensure food security,- extension of the role of the agricultural sector as amajor foreign currency earner,- a greater degree of economic security and welfare forthe majority of the population who live in the ruralareas.There is no formal statement of national objectives specific tothe wheat industry but it is assumed that the objectives whichrelate to the wider issues of national food security, foreigncurrency earning and improved welfare also relate to the wheatindustry. It is on the basis of these agricultural objectivesthat the pricing policy is designed. Agricultural pricing inZimbabwe is highly interventionist, with the producer andconsumer prices of most major products being administrativelydetermined. Thus the government uses pricing mechanism toinfluence production, consumption and marketing trends in theagricultural sector.At the heart of the pricing policy is the central roleplayed by the price of maize, because of its weight in consumerexpenditure and the high proportion of land and other productiveresources dedicated to it by producers. To a considerable13extent the price levels of most other crops are determined inrelation to the price of maize.This interventionist policy framework dates to the 19305,and was part of government effort to provide producers with aframework of predictable prices to facilitate investment andplanting decisions. After independence 1980 the objectives ofprice policy were reviewed to include:i) provision of food for consumers at moderate prices,ii) promotion of the agricultural industry in the Communalareas,iii) restraint of the growing budgetary cost of agricul-tural intervention,Clearly there are conflicts within and among some of theseobjectives. For example the need to restrain the budgetary costof agricultural intervention conflicts with the desire for foodsecurity stock holding and also with expansion of the ruralnetwork depots designed to encourage production by makingmarketing facilities accessible.Because Zimbabwe's pricing policy is a holdover from thecolonial era, in which it was designed to serve a small agricul-tural elite; present pricing policy is not necessarily optimalfrom an efficiency, equity or budgetary standpoint. The levelof prices has had an important effect on resource allocation andhas historically always favoured the LSC farmers. This problemis over shadowed by an even greater conflict. Providing pro-ducers with the necessary incentive to produce by raising the14level of their incomes conflicts with provision of food forconsumers at moderate prices especially at a time when theeconomic situation in the country is forcing the government toreduce consumer subsidies. This is the core of the conflict ofinterests in agricultural policy in Zimbabwe.2.6 Price Setting Procedures:Producer and consumer prices for the commodities handled bythe marketing boards are set annually by the Cabinet on thebasis of submissions from the Ministry of Lands Agriculture andRural Resettlement (MLARR) which is itself a result of a complexprocess of analysis and lobbying. The lobbying starts with theAgricultural Marketing Authority (AMA) perspective of themarketing boards, and the Joint Presidents Agricultural Commit-tee (JPAC) of the three farming unions. MLARR reviews thesubmissions with particular attention being paid to likely stocklevels at the close of the marketing year, expected intake,domestic demand, export opportunities, and in respect to wheatthe price and quantity of imports. Cabinet makes the finaldecision and the prices are effective for a year startingApril 1. The process of price negotiations is subject torestrictions of confidentiality. It is possible however, tomake general observations on the interplay between the differentinterests. In the great majority of cases, the final pricesannounced are identical with or very close to the recommenda-tions of the MLARR. It is therefore justifiable to say that the15pricing procedure is really based on the MLARR price analysis,which applies the following criteria5:i) cost of production which is used to assess the likelyeffect of a given price on farm profitability, and thelikely supply response in the following year,ii) supply and demand conditions, and stock levels aretaken into consideration with relative prices betweencrops being given considerable attention,iii) year-to-year variability of producer prices is con-sidered with the goal that producers' price levels bepredictable to facilitate decisions on investment andcropping patterns.Reviewing the criteria employed during the process ofsetting administered prices highlights some strengths and someweaknesses of the system. A strength of the system is that ona consistent basis it involves the main participants in theindustry, allowing intensive discussion at both the technicaland political levels. At its best it provides the mechanism forexplicitly identifying conflicting objectives and enablingcompromises to be arrived at. The continuity of the system alsobuilds on institutional knowledge to a considerable extent.There are three principal weaknesses in the present analyticalapproach to price determination.°5 Takavarasha T. and A. Rukovo "Food Security Issues and Chal-lenges for the 1990s". In Mandivamba R., Mudimu G and JayneT,eds. Food Security Policies in the SADCC Region (1990)6 Ibid16- First is the lack of well-based estimates of priceelasticity for the main crops.- Second, the food security and income implications ofalternative price levels are not systematically drawnout. Price analysis tends to be based on crop speci-fic budgets without sufficient attention being paid tothe farm or household context.- Thirdly, the MLARR do not have the means at theirdisposal to carry out research on the impact ofalternative price levels on important variables suchas supply and demand of the commodity, income dis-tribution, public and private stocks levels and on thefinancial position of the marketing Boards.In general, agricultural pricing policy since Independencehas created an incentive structure for producers that is broadlyconsistent with the type of structural change in agriculturethat government sought. Efforts by Government to promotediversification in production patterns towards higher valueexport crops appear to have been reasonably successful as far asthe commercial farming sector is concerned.Those prices controlled by government have not generallykept pace with inflation, with the result that the real value ofoutput prices has been falling. Since many of the major commer-cial crops are close substitutes in production, commercialfarmers are able to shift from one crop to another. Therefore,relative price ratios have a large impact on output decisions.172.7 Land Distribution: Policy ImplicationsTo be effective any agricultural policy in Zimbabwe has totake into account the political and economic implications of thehistorical perspective of land distribution, a factor whichamong other things explains why despite the fact that communalfarmers have entered the market in increasing numbers sinceindependence, most commercial agriculture in Zimbabwe is stillin the hands of the Large Scale Commercial farmers. It alsoexplains why alongside this highly successful commercial sector,featuring high levels of input use, extensive mechanisation andhigh levels of management, exists an impoverished peasantsector. The performance of Zimbabwean farmers is highlyimpressive even by international standards. During years ofadequate rainfall, yields on commercial farms rival thoseachieved anywhere in the world, and Zimbabwe's two major exportcrops tobacco and cotton usually command quality premiums onworld commodity markets.The distribution of land in Zimbabwe is highly skewed infavour of the white minority and, therefore, has been an espec-ially controversial issue throughout the country's history.Preferential land policies for white settlers were an integralpart of colonial policy which persisted until independence.During the war for independence land redistribution was aneffective rallying point for the Nationalist forces, so that atindependence expectations for redistribution were very high.The land policies before independence led to the European18area being expanded through appropriations7, until it came toencompass a substantial portion of the granite based light sandysoils and a large portion of the more fertile loams in thecountry's Natural Regions 1,11 and III. The country's blackpopulation was pushed further into Natural Regions IV and V,marginal areas with the poorest soils,and prone to drought. Inthe late 1970s the whites in Zimbabwe held 62.6 percent of theland suitable for specialised farming and 73.8 percent of theland best suited for intensive crop and livestock production.Policymakers face the dual objectives of attempting toredistribute the land and other resources equitably, whilemaintaining the high level of productivity needed to sustaindevelopment in the sector. The two major issues regarding landthat policymakers face are:i) the extent and pace of land redistribution,ii) identifying the means for transferring land thatminimises economic and social disruption.To date only 162 000 families have been resettled compared tomore than 666 000 families identified at independence in 19808.In attempting an equitable distribution of economicresources the government has deliberately kept the prices ofthose crops grown by the LSC at lower prices than those grown bythe peasant sector. So the price of wheat has been kept low7 Auret D "A Decade of Development Zimbabwe 1980-1990" TheCatholic Commission for Justice and Peace in Zimbabwe (1990)8 Thompson Publications Zimbabwe "Zimbabwe A Field for Investment1989/90" Department of Information (1990)19because of government fears that a high price to the wheatproducers may be seen to be a continuation of the colonialpolicy to favour the white farmers. Therefore, until the landquestion is resolved or the government has invested in irriga-tion in such a way that some peasant farmers can also grow wheatthe pricing policy will continue to disadvantage wheat.20CHAPTER 33.0 THE WHEAT INDUSTRY IN ZIMBABWE:3.1 Development of the Wheat Industry in Zimbabwe:As in most of Africa, wheat is assuming greater importancein Zimbabwe because of rapidly increasing demand. HoweverZimbabwe is one of the few African countries that grows signifi-cant quantities of its needs. Wheat was introduced in Zimbabwein the 19th century by the European missionaries. A sizeableindustry only developed in 1965 as a result of UnilateralDeclaration of Independence (UDI)9 which reduced commercialgrain imports and precipitated the need for self-sufficiency inbasic cereals. In 1965" only 4 000 tonnes of wheat were grownin the country meeting only 4% of total requirements. Thenation's 2000 commercial farmers responded to the challenge inremarkable fashion, creating a viable wheat industry within ashort period:"Wheat is the principal crop planted in winter, occupyingabout 95% of the winter planted acreage. Other crops grown ona smaller scale are barley, oats and winter legumes. The summercrops grown in rotation with wheat are maize, soyabeans and9 UDI Unilateral Declaration of Independence10 Rukuni M. "The Development of Zimbabwe's Agriculture 1890-1990" Working Paper 7/90 Department of Agricultural Economicsand Extension, University of Zimbabwe (1990)II Grain Marketing Authority Report and Accounts : Year endingMarch, 31 1990, Harare, Zimbabwe21cotton. The study carried out by Longmire et al showed thatmaize was the principal summer crop grown in rotation to wheat.Several factors made the development of a domestic wheatindustry possible. First, climatic conditions, i.e the coolwinters, in Zimbabwe are generally favourable for irrigatedwheat. Irrigation also makes yields quite stable. The nationalaverage yields are among the world's highestu at 4.5 tonnes/hain the Lowveld and between 5.5 and 5.7 tonnes /ha in theHighveld where temperatures are lower. Whereas much of Sub-Saharan Africa is too hot for wheat, the Middleveld and Highveldof Zimbabwe have temperatures ranging from 0-20°C, well withinthe limits tolerated by wheat. Rainfed wheat in the summer isconstrained by excessive heat and disease. Small amounts ofwheat are grown at Kairesi range in the Eastern Provinces wherethe Research and Specialist Services are experimenting withsummer rain-fed wheat varieties.Second, the similarity in production technologies betweenwheat and other crops grown in Zimbabwe made it relatively easyfor commercial farmers to shift into wheat, while Governmentpolicies created strong incentives for commercial farmers totake up wheat production. In the later half of the 1960s,producer prices for wheat were maintained above import parityprices, and subsidised credit programs were introduced topromote wheat production. Zimbabwe's success in wheat is alsoAgricultural Marketing Authority Economic Review of theAgricultural Indusrtry of Zimbabwe (1989)22attributable to excellent research. The varieties most suitableare the dwarfs and semi-dwarfs, all developed within thecountry. Continuing research is essential, because the threatof rust limits the use of each variety to a period of 3-5 yearsonly.Previous governments stimulated interest in wheat growingsince 1965 by establishing high producer prices, well aboveimport parity. At first most of the wheat was grown in theLowveld on irrigated land developed by the Sabi-Limpopo Author-ity. However farmers in the highveld assisted by long term lowinterest loans from the government, invested in irrigation andhighveld wheat production increased. Higher yields than in theLowveld were achieved. Producer prices levelled off anddecreased in the early 1970's as they became aligned to Highveldrather than Lowveld production costs. Production in the Lowvelddecreased as more land was planted to crops such as sugar andcotton with higher returns. The government raised the producerprice by the end of the 1970's to compensate for escalatinginput costs but it was kept below the border price.Zimbabwe is a high cost producer relative to worldprices.13 Capital costs of establishing a new irrigation schemefor 1987 were estimated by the Commercial Grain ProducersAssociation at $1 600/ha, 317 percent higher than in 1977. Inthe meantime operating costs have also risen steeply so that13 Report of the Commission of Inquiry into the AgriculturalIndustry under the Chairmanship of Professor Gordon Chavunduka(p. 41)23some established wheat producers have chosen to cut backproduction. This implies that while demand for wheat willcontinue to grow as a result of increased urbanisation, domesticsupply will decrease even further.3.2 Wheat Production and Consumption Trends:Consumption of wheat and wheat products has grown even morerapidly than domestic wheat production (Table 2). Totalconsumption tripled in the past two decades, and per capitaconsumption doubled. The forces underlying this rapid increasein consumption are similar to those found elsewhere in the Sub-Saharan region, and in much of the developing world, such asrising incomes, increasing urbanisation, changes in consumertastes and preferences. More importantly is the relatively lowprices of wheat compared to the prices of traditional staples.In 1970 Zimbabwe reached self-sufficiency and even exportedsmall quantities, but this was short lived. In the followingyear unprecedented increase in the demand for wheat productscoupled with a bad rainy season resulted in total importrequirements of upto 85 985 tonnes. Self-sufficiency has eludedthe wheat industry with imports peaking at 121 495 tonnes duringthe drought in 1984.The government controls consumption of wheat throughrationing. The millers speculate that demand for wheat could be25-30 percent more without rationing. The Grain Marketing Board(GMB) has predicted that consumption of wheat could easily24exceed 320 000 tonnes per year without rationing. This proved tobe an under estimate since sales for 1987 with rationing were333 319 tonnes. The Agricultural Marketing Authority (AMA) haspredicted that by the end of this century Zimbabwe could beconsuming as much as 500 000 tonnes of wheat per annum.14The GMB has consistently run a deficit on its wheat accountamounting to a peak of Z$95.52/t in 1988/89. The wheat tradingdeficit accounted for 21 percent of the Board's total tradingloss between 1981-1989 marketing years.There is a lot of support for Zimbabwe to continue growingwheat even from the influential Report of the Commission ofInquiry into the Agricultural Industry under the Chairmanship ofProfessor G.L.Chavunduka which has recommended that productionof wheat in Zimbabwe makes a good deal of sense. The majorconsiderations being the need to conserve foreign currency andthe unreliability of external transport. Also of great import-ance is the complementary nature of wheat in farm operations,since it is produced in the winter, an otherwise slack period.Thus labour can be more fully utilised around the year anddevelopment of irrigation will improve crop production since thewater can also be used to supplement for moisture in summercrops.Agricultural Marketing Authority Grain Situation and OutlookReport  , various issues 1970-199025Table II^Wheat Production and Consumption Trends1977-1990Year Area(ha)Prod'n(t)Yield(t/ha)Cons'n(t)per capCons(t)Imports(t)1977 36 138 141 300 3.91 191 701 19.17 50 4011978 37 881 161 752 4.27 221 655 21.43 59 9031979 41 599 182 620 4.39 189 657 24.39 7 0371980 41 834 207 915 4.97 221 681 28.79 13 7661981 41 872 228 202 5.46 250 031 30.30 21 8291982 44 132 251 111 5.70 272 111 30.97 21 0001983 37 904 204 682 5.40 307 432 29.38 102 7501984 36 042 207 242 5.79 328 737 27.57 121 4951985 32 707 176 618 5.4 219 134 29.83 42 5161986 32 878 189 049 5.75 210 702 29.69 21 6531987 44 808 241 963 5.41 333 319 31.62 91 3561988 43 067 245 482 5.71 309 514 32.86 64 0321989 46 298 262 510 5.68 300 267 38.36 37 7571990 49 321 242 166 4.92 295 916 37.39 53 75036.5 71 25 54 95 6- percentage growth rates period 1977-1990Source: Agricultural Marketing Authority of Zimbabwe GrainsSituation and Outlook Report various issues period 1970-1990263.3 Policy Options for Wheat in ZimbabweWheat along with soybeans, is among the most tightlyregulated of the controlled crops in Zimbabwe. LSC farmers whoare responsible for 95 percent of all production sell directlyto the Board, and with milling being exclusively on a largeindustrial scale, wheat is almost wholly marketed through asingle channel from the producer through the board to themillers and then to consumers through the wholesale and retailnetwork.Previous studies have concentrated on policy options forthe wheat industry. The study by Jim Longmire et a115 outlinesthree basic options to meet the growing demand for wheat inZimbabwe, vis;- expansion of wheat production,- adoption of policies to slow down consumption growth,- continue to import wheat.Zimbabwe has learned from other developing countries theproblems of allowing food imports to build up during the "goodyears" i.e the years of high export returns the author assumesthat within the current economic situation of Zimbabwe thegovernment will not adopt the policy to import unlimitedquantities of wheat. Currently most wheat imports have beenarranged as barter or triangular swap arrangements for maize15 Ibid27being sent as food aid to other African countries e.g Mozam-bique. In good rainfall years there is no problem in thisarrangement because of the excess maize. The problem arises indrought years in which the government can not raise the necess-ary excess maize to barter and the scarce foreign currency hasto be used to import maize which is the staple.The adoption of policies to slow down growth of wheatconsumption has political repercussions which may make govern-ments reluctant to implement it. Bread has replaced the staplefood maize for most of the urban population because of itsconvenience, its price and easy accessibility. The urbanpopulation represent a powerful electorate, and at a time whengovernment has set a freeze on wage increases an increase in theprice of bread is politically undesirable.16However, such a policy could be effected if prices of otheralternatives were simultaneously reviewed. Presently maizeproducts are priced higher than wheat products. In their studyLongmire et al draw the conclusion that if retail prices ofbread and maize products were set to reflect the supply pricesof these grains at the producer level, this would increase wheatto maize price ratios and slow the growth in consumption ofwheat products, thereby increasing the relative demand for maizeproducts.Masters W.A. "The Value of Foreign Exchange in Zimbabwe:Concepts and Estimates" Working Paper AEE 2/90 Department ofAgricultural Economics and Extension, University of Zimbabwe(1990)28Another factor affecting wheat production in aggregate isthe relative profitability of alternative crops. Since wheatalready occupies 95 percent of the winter irrigated area thereis little potential for further substitution of wheat for otherwinter crops on existing wheat farms. However there is scope forsubstituting water away from supplementing summer crops toirrigating wheat. In addition, some farmers currently notgrowing wheat might be induced into its production if prices ofexport crops declined relative to wheat. Small holder farmerscould be induced into wheat production if the governmentincreased investment in irrigation.There are a lot of inconsistencies in the way governmenthas been setting prices in the wheat industry. On the one hand,producer prices, have been kept below import parity since thelate 1970's: producers received an average of Z$460 comparedwith an estimated import parity of Z$620/tonne in 1990. On theother hand Zimbabwe has maintained a subsidy on wheat imports tothe millers in order to maintain low consumer price of breadsince 1965. In addition to which export crops have been pricedabove export parity, notably maize, cotton and tobacco therebymaking export crops relatively more profitable than wheat. Thusgovernment does not offer any incentives to domestic wheatproducers while at the same time they encourage consumption ofwheat by maintaining low consumer prices.Studies from a number of countries suggest that industrywide production of wheat is responsive to price incentives. The29question for Zimbabwe is how responsive to producer prices andother incentives will the wheat industry be in the future. Theadjustments of the industry to price changes in the late 1970sand in the early 1980s suggests there is significant responsive-ness. Evidence from other countries with irrigated wheat grownin rotation with summer crops also adds weight to this point.For example, Seeley (1985) reports that wheat production inPakistan, India, and Egypt has responded by between 1 to 8percent for every 10 percent increase in producer prices.In summary, three important policy issues, relevant to thewheat industry have been identified- the producer price of wheat is consistently kept belowimport parity,- a subsidy on wheat to the millers has been maintainedto keep consumer prices of wheat low,- The government controls the quantities importedthrough rationing of foreign exchange made availableto the industry.3.4 Literature Review:Derek Byerlee, of CIMMYT17 has indicated that wheat has aspecial significance in the analysis of food policy and foodimports in the Third World, because cereals constitute the bulk17 Byerlee D.^"The Political Economy of Third World FoodImports: The Case of Wheat" Economic Development and Cultural Change Vol 35 (2)30of Third World food imports, and among cereals wheat is by farthe dominant food grain import. In 1986, wheat accounted for86% of food grain imports by Third World countries. Mostdeveloping countries lie within the tropical belt in which theclimate is unsuitable for wheat production, hence the basicinconsistency between the traditional food staple and theimportation of wheat a non traditional staple with littleimmediate prospects for local production.Byerlee's paper develops a framework to analyse the recentpatterns in consumption and imports of wheat by developingcountries, in light of both national food policies and thepolicies of the exporting countries. His study shows the biasesin national and international food policies in favour of wheatproducts and he also discusses policy measures to arrest growingdependence on food imports. Fig 3 is a schematic representationof factors influencing consumption. On the right hand side arethe factors which influence demand through their effects onincomes and food preferences, while the left shows those factorsrelated to supply that influence the quantity and price ofimported wheat relative to local food staples. A number ofgovernment policies, such as consumer subsidies, investments inthe marketing and processing infrastructure influence the demandfor wheat.In Byerlee's study many of these factors were confirmed bycross-country regression analysis of per capita wheat consump-tion in 39 countries. The results of the regression analysis31show that the strongest determinant of per capita wheat consump-tion in the tropical developing countries is per capita incomewhich is closely correlated with urbanisation. This phenomenonis also observable in the case of Zimbabwe. The upsurge inurbanisation since independence in 1980 there has resulted in anunprecedented increase in the consumption of wheat and wheatproducts particularly in the form of bread. Morris"in hispaper "Comparative Advantage and Policy Incentives for WheatProduction in Zimbabwe" developed a framework for measuringcomparative advantage of using local resources to produce aparticular crop when measured against the possibilities oftrade. He expressed comparative advantage by means of theresource cost ratio (RCR) which is a measure of the cost ofdomestic resource to a country of producing a particularcommodity.18Morris M.L. "Comparative Advantage and Policy Incentives forWheat Production in Zimbabwe" CIMMYT Economics Working Paper88/02 (1988)32Fig 3 Factors Influencing Productionand Consumption of WheatDomestic FoodSupply and MarketingWheatExporting .0Countries■■■•411111111..11■11111111.•Local WheatProcessingIndustryWorld WheatSupplyand PricesGrain Transportand StorageInfrastructureForeignExchange—I"RatesFood AidPrice ofWheatImportsConsumer Price ofCompeting Food StaplesConsumer Pricefor Wheat•^ ProductsjrConsumerIncomesMarketConsumer^PromotionPreferences^and4^DevelopmentUrbanizationConsumerSubsidiesf 1Domestic Wheat Production and MarketingSource: Byerlee D. "The Political Economy of ThirdFood Imports: The case^of Wheat"^198933From this study the author drew the conclusion thatZimbabwe enjoys comparative advantage in wheat production duringperiods when irrigation water is plentiful, but this comparativeadvantage is lost during times of drought when water becomes alimiting factor of production. An important issue raised inthis study is that water is more valuable when used on cropsother than wheat since farmers apply water inefficiently towheat. There is growing evidence to show that the total amountof water applied to wheat can be reduced significantly withoutdrastically affecting yields. Therefore Zimbabwe's future self-sufficiency in wheat depends critically on research designed toincrease the efficiency of water use by the crop.Bond win her paper "Agricultural Responses to Prices inSub-Saharan African Countries" reviews econometric evidence onsupply responses to farm prices in sub-Saharan African countriesin order to assess the quantitative significance of price in theagricultural sector. In view of the importance of theagricultural sector for growth and adjustment, governments needto determine what policies are best suited to stimulateagricultural production. In particular the crucial question isthe extent to which pricing policy can be used to encourageagricultural growth. Many economists including those at theWorld Bank maintain that inadequate government-administeredprices were a principal reason for the poor performance ofwBond M.E. "Agricultural Responses to Prices in Sub-SaharanAfrican Countries". International Monetary Fund Vol 30December 198334agriculture in Africa.Bond's paper is important because of her attempt to givethe reasons for why it is difficult to econometrically assessthe responsiveness of crop output to prices and other variablesin developing countries. First the data are of poor quality orsimply not available. Second a positive correlation between theproducer price and marketed output indicates very little aboutthe relationships underlying the choices of farmers betweenleisure and production, food crops and cash crops, and wage workand work on own farms.In addition to relative prices, another important variablethat affects a farmer's cropping decision is his perception ofrisk, particularly risks pertaining to weather patterns anddependency on markets. As Bond concludes, lack of reliabledata and shortage of research tools such as computers make itdifficult for most African countries to simulate all the factorsto develop comprehensive models.Berhmann discussed various a priori hypotheses about thesupply responsiveness of underdeveloped agriculture to pricechanges. He divided the hypotheses into three major categories:- The hypothesis that farmers in underdeveloped agricul-ture respond quickly, normally and efficiently torelative price changes- The hypothesis that the marketed production of subsis-nBehrman J.R "Supply Response in Underdeveloped Agriculture: Acase study of Four Major Annual Crops in Thailand 1937-1963"North Holland Publishing Company (1968)35tence farmers is inversely related to price-^the hypothesis that institutional constraints are solimiting that any price response is insignificant.A major proponent of the first hypothesis T.W.Schultz emphati-cally presented the following hypothesis:"The rate at which farmers who have settled into atraditional agriculture accept a new factor of produc-tion depends upon its profit, with due allowance forrisk and uncertainty, and in this respect the responseis similar to that observed in modern agriculture"21That farmers in developing countries respond to price incentivescan also be shown by the tremendous increase in wheat productionbetween 1960 and 1970 in Zimbabwe. Good prices, kept aboveimport parity, coupled with government support in the form ofirrigation loans saw a boom in wheat production in less than adecade. The exact opposite happened when prices dropped belowimport parity.The questions about supply response are basically quanti-tative, requiring quantitative estimates to answer them.However, there is little quantitative evidence to prove one orthe other theory.No satisfactory econometric study of Zimbabweanagricultural supply responsiveness has as yet been conducted.Studies for other low income areas, however, are increasing innumber. Behrman22 summarised the price responses which have21 Schultz T.W. "Apathy on Hunger Assailed by Myrdal" Nov 23,196522Ibid36been estimated for total production of various specific crops inlow-income agriculture. Several general comments are suggestedby the pattern of these estimates, the most important being:- For annual crops there is a tendency to use area asthe dependent variable because yields are often foundto be unresponsive to price changes.- The estimates being taken as a whole lend some supportto the hypothesis that price responsiveness in under-developed agriculture is of an order of magnitudequite comparable to that observed in the agricultureof high-income areas.Using Marc Nerlove's Dynamic Supply Response Mode1,23Behrman' S24 work was the first major study to estimate struc-tural parameters for output of several crops cultivated inThailand, with the aid of nonlinear statistical procedures.Behrman used a four equation version of Nerlove's model.Behrman25 discusses the advantages of using area planted toa crop as a proxy for planned total output since time seriesdata for planned output is not available. Planted acreage isgenerally the best available method of gauging how cultivatorstranslate their price expectations into action. The area23Nerlove M. "The Dynamics of Supply: Estimation of Farmers'Response to Price" Baltimore, The Johns Hopkins Press (1958)24Behrman J.R. "Supply Response in Underdeveloped Agriculture:A case study of four major annual crops inThailand, 1937- 1963" North Holland PublishingCompany Amsterdam (1968)25Ibid37actually planted to a particular crop is to a much greaterdegree than output, under farmers control and thus presumably amuch better index of planned production.All users of the Nerlovian model have included an expectedprice as a determinant of desired (actual) area planted in acrop, but Askari and Cummings26 have raised concerns about whichprices would be appropriate. In his analysis Behrman used theratio of the price received by the farmers relative to alterna-tive crops. The associated coefficient is expected to bepositive, since an increase in the price should make productionof the crop more desirable.Nerlove did not include yield in his initial study becausehe did not see any "striking trends" in the yields of the cropsunder study. In some of his later analysis27 for a later timeperiod Nerlove did include an expected yield. Askari andCummings outlined the following as the advantages of includingthe yield factor:1) with the term (yet.i _ Y 1) it is possible to accountt-for unexpected variations in yield, and for howrapidly cultivators adjust their yield expectations.2) a more fully specified model allows governmentofficials to obtain evidence as to the effects ofpotential policies on crop yield.26Ibid27Nerlove M, W. Addison "Statistical Estimation of Long-RunElasticities of Supply and Demand" Journal of Farm Economics Vol 40 (1958)38CHAPTER 44.0 APPLICATION OF THE NERLOVIAN SUPPLY RESPONSE MODEL TO WHEATPRODUCTION IN ZIMBABWEThis section presents the regression equation and theresults of the model used to estimate the price responsivenessof wheat in Zimbabwe. The analysis is carried out for theperiod 1970-1990. The method most frequently used to analyseprice responsiveness is to estimate price elasticities.^Themodel most empirical studies apply is the Nerlovian SupplyResponse Model (Nerlove 1958, Behrman 1968, and Askari andCummings, 1977; Bond 1983, Janssen and Perthel 1990).4.1 Explanatory Variables:A study by Longmire et al on wheat policy options inZimbabwe and SADCC countries (1986)28carried out a survey inwhich farmers were asked to rank in order of importance theconstraints to increased wheat production. The results aresummarised as follows:Low Profitability^ 56 %Operation costs of irrigation^ 21 %Variability of rainfall^ 18 %Availability of certified seed^ 3 %Others (e.g. accessibility to depotsand extension services etc) 2%28 Longmire J.,P. Ngobese, S. Tembo "Wheat Policy Options forZimbabwe and SADCC Countries:" Working Paper, Department ofAgricultural Economics and Extension, University of Zimbabwe(1986)39Other studies on Zimbabwe (P. Ngobese) and includingstudies on wheat production in the tropics, such as CIMMYTpublication on "Wheat in More Tropical Environments"28also putlow profitability as the major constraint to wheat production.This and the data presented earlier in this thesis leads us toassume that the pricing of wheat is a major issue in consider-ing the problems of wheat production in Zimbabwe.The summer crops grown in rotation with wheat are maize,soyabeans and cotton. The study carried out by Longmire et alshowed that maize was the principal summer crop grown inrotation to wheat. Although, summer crops are generally rainfedsupplementary irrigation is necessary to improve the yields asit allows for more timely plantings and is also used to relievemoisture stress during dry spells which occur quite frequentlyduring the rainy season. Farmers therefore face the choice ofwhether to irrigate their summer crops and thereby cut back onthe acreage planted to wheat in the winter or hold their waterin reserve and irrigate wheat.Since maize is the most important alternative to wheat boththe price of wheat and the price of maize deflated by the CPIwill be included in the model. The use of a CPI deflator whichmay be of dubious value for subsistence farmers in otherdeveloping countries who buy only a very select basket of goodsor none at all will be quite valid in the case of wheat in28 Byerlee D. "Wheat in Tropical Environments:" CIMMYT EconomicsProgramme, Mexico (1985)40Zimbabwe, since it is mostly grown by commercial farmers who userelatively large amounts of purchased inputs.An important point to note is that current and not laggedprices of wheat and maize will be included, because wheat beinga winter crop is the only commodity for which the price is knownbefore planting. The producer prices for all agriculturalcommodities are announced in April and wheat plantings onlybegin at the end of May.Another major constraint to increased production is thecost of establishing and operating irrigation schemes. Althoughthe Ministry of Energy and Water Resources has estimated thatupto 430 000 ha could be brought under irrigation, only 165 000ha are currently being irrigated. Both Government and farmersare cutting down on investment in irrigation because of theoperational costs. Cost of irrigation per unit of area ($/ha)will therefore be included as one of the explanatory variables.Although the amount of rainfall is an important aspect ofthe weather conditions which affect agricultural production inZimbabwe, many other factors such as the timing of the rainfalland the amount of sunshine are also important. Ideally themodel should include a weather index to account for all suchrelevant factors, but the unavailability of data makes theconstruction of a more inclusive index impractical. The meanannual rainfall alone, is used as a partial index of the weatherconditions. Rainfall also serves as a constraint to availabilityof irrigation water.41A non-market variable to take into account those factorsnot conveniently quantifiable such as accessibility to deliverydepots, availability of certified seed and extension servicesshould have been included but there was no reliable data to showhow their effects change from year to year. However it is hopedthat all these effects can be captured by the inclusion of aTime trend variable.Wheat is the principal crop planted in winter, occupyingabout 95% of the winter planted acreage. Other crops grown ona smaller scale are barley, oats and winter legumes. The acreageplanted to these crops is so insignificant compared to thatplanted to wheat, it was not considered necessary to includethem in this model.4.2 Model Specification:The objective of this part of the thesis is to measure theresponse of total planned production of wheat to variousvariables such as its own price, the price of substitutes,inputcosts and rainfall. Because time series estimates of plannedoutput are not available a proxy variable was utilised. Usingactual output creates problems since it usually differs con-siderably from planned output because of factors such as theweather etc, factors beyond the direct control of the producer.Most econometric investigators of agricultural supply responsehave therefore tended to use the area planted as a proxy forplanned output, since area planted to a crop is to a muchgreater extent under the farmers control than output. Area42planted to wheat is therefore the dependent variable in thisstudy.A three equation version of the Nerlovian supply responsemodel was used. The structural model consists of a desiredplanted area relationship, a planted area adjustment relation-ship and an expected normal relative price relationship and theexpected yield relationship. The following is the general formof the model:Atd = aii cc12PWTte + a13PMZt(41417WTt a15P/Rt^(1)+ a16RNFt + a17T + Ul tA t = a21 + At-1 + rot - At-1) + u2t^(2)PWT:' = PWTt^ (3)Adt^the desired area planted to wheatA t^the actual area planted to wheatPWTet^the expected normal producer price of wheatPMZt^the price of maize43YWTt the expected yield per unit planted areaPIRt^cost of irrigation per unit planted area.RNF^mean annual rainfallPWT t^current producer price of wheatarea adjustment coefficienttime trendUit^disturbance term for the i-th relationshipan^the j-th structural parameter in the i-th structuralequationThe dependent variable (Ad) and the first right hand sidevariable (PWTet) are unobservable. Equations (2), (3) respective-ly relate the desired area planted, the expected normal relativeprice to observable variables. The area planted adjustmentequation (2) states that the area actually planted in thecurrent period (t) equals the area planted in the previousperiod, plus a term (r) proportional to the difference betweenthe desired planted area in the t-th period and the actualplanted area in the previous period, plus a constant and adisturbance term. A priori, the values of the area adjustmentcoefficient r should lie between zero and two. The adjustmentmay be characterised as an underadjustment, an exact adjustment,or an overadjustment, depending on whether the adjustmentcoefficient is between zero and one, not significantly differentfrom one or between one and two respectively.The expected normal relative price in production period (t)equation (3) equals the normal relative price in the current44period. At time of planting the price of wheat has already beenannounced and is therefore known by the farmers.Equations (1, 2, and 3,) are then manipulated by substitut-ing equation 3 into 1 then 1 into 2 to obtain the equation (4)in which the unobservable variables, Ad, and Pet have beeneliminated.At =^raii 411 - r)At-i ra12PWTtrai3PMZt ra14IWTt + raisP/Rt (4)ra 16 RNF t + ra 17 T + rult u 2 tEquation (5) is the reduced form of equation (4)A t = 0 + 1A t-1 + 71 2 4 PWT t+ 7c3PMZt + ir4YWTt + 7r5P/Re(5)1t6RNFt n7Tt Utwhere vi's are reduced form parameters.vo = a21 + ran, vi = ( 1^r)^72 ' raiz, 7r3^r a13V4 = Fa 14,^= rais, 71-6 = ra16, 77 = r a17and U = U + UaThe coefficient on variable A i, v1 is expected to have apositive sign and to be statistically significant since struc-45tural factors such as irrigation limit the ability of farmers toadjust to price changes in the short run. Price of wheat (PWT)is also expected to have a positive and significant coefficient.Price of maize (PMZ) is the price of a substitute and thereforeexpected to be negative, but significant since the price ofmaize plays a central role in agricultural price setting inZimbabwe. The coefficient of the rainfall variable (RNF) isexpected to have a positive sign. The coefficient of theirrigation costs variable is expected to be negative since it isinversely related to acreage planted to wheat. Both coeffi-cients are expected to have significant t-ratios, since fre-quency of rainfall and availability of irrigation are twoimportant factors of wheat production. The yield (YWT) factoris expected to have a positive sign but it may not be verysignificant, as it is influenced by irrigation and rainfall.4.3 Estimation Procedures:Equation (3) was estimated using the SHAZAM Econometricpackage. A linear functional form was regressed using ordinaryleast squares (OLS).The simplest measure of model validation is the R2. Fourdifferent regressions of the model were run (see Table 3) and inall four cases the R2 were quite high ranging from 0.94-0.98.In all cases the R2 adjusted were very close to the original R2from 0.92-0.97. Equations 1 and 3 are linear, with acreageplanted to wheat as the dependent variable. Equation 1 was46regressed using ordinary least squares and the coefficientsshowed correct signs as expected but the yield variable had aninsignificant t-ratio. The Durbin h statistic was 1.69 showingthat autocorrelation did not exist. The second equation wasregressed using ordinary least squares on a double logfunctional form. The results showed the expected signs, butsince yield remained insignificant I decided to test formulticollinearity. An examination of the correlation matrixindicated that the pairwise correlation coefficient betweenyield and rain was high, and since yield showed a low t-ratio Idecided to drop it.Equation 3 is a repeat of equation 1 without the yieldvariable. The R squared in equations 1 and 3 remained the sameshowing that dropping the yield variable did not result inspecification bias of the model. Likewise equation 4 was arepeat of equation 2 without the yield variable. The R squaredremained the same as equation 2 but the price of wheat variableshowed an insignificant t-ratio. The Durbin h statistic stillshowed no evidence of autocorrelation. I therefore decided touse the results of the equation (3) contained in Table IV for myanalysis.47Table 3:of Regression Results2^3^4Summary1EQUATION^linear loglog linear loglogConstant^0.74 2.25 0.32 2.22(0.88) (1.05) (0.38) (0.77)#^0.22 2.25 0.91 2.22T trend^0.29 0.61 0.25 0.62(1.67) (1.41) (3.18)#^1.11 0.61 0.94 0.62Lag Acre^0.69 0.95 0.53 0.94(13.5) (11.44) (5.71) (11.92)#^0.94 0.95 0.91 0.94YWT 0.78 0.11(0.46) (0.56)0.34 0.11PWT^0.25 0.11 0.58 0.15(2.34)* (2.40) (2.03) (1.18)0.16 0.11 0.11 0.15PMZ^-0.75 -0.49 -0.12 -0.47-(2.98) -(3.25) -(2.07) -(3.28)-0.53 -0.49 -0.41 -0.47RNF^1.29 0.27 1.47 0.31(4.76) (5.11) (2.83) (2.87)0.21 0.27 0.27 0.31PIR^-0.15 -0.15 -0.19 -0.15-(2.48) -(2.51) -(2.58) -(1.99)# -0.21 -0.15 -0.25 -0.15R squared^0.98 0.98 0.94 0.98R sqd adj^0.97 0.97 0.92 0.97Durbin H^1.69statistic1.97 1.57 1.73Notes:^YWT-Yield of wheat WheatPWT- Price of wheatPMZ- Price of maizeRNF- RainfallPIR-Irrigation price# elasticity at means*significant t-ratio48Table 4:Model Results(n=22)Dependent variable Acreage planted to wheatVariables EstimatedCoefficientt-ratioat 5% levelElasticityat meansAt_1 0.53 5.71 0.91PWTt 0.58 2.03 0.11PMZt -0.12 -2.07 -0.41RNFt 1.47 2.83 0.27PIRt -0.19 -2.58 -0.25T 0.25 1.41 0.94constant 0.32 0.38 0.91R2 = 0.94^R2 adj = 0.92^* Durbin H statistic =1.57At_i - lagged acreagePWT - price of wheatPMZ - price of maizePIR - Irrigation costsT^- Time trend variableDurbin H statistic decision rule:If h lies between -1.96 and 1.96 do not reject the nullhypothesis that there is no first-order autocorrelation.292 9Gujarati D.N "Basic Econometrics" Second Edition (1988)49In order to further check the accuracy of my model Iplotted the observed and predicted acreage and this showed afairly reasonable correlation between observed and predictedvalues (Fig 4). A plot of the error terms also showed that theywere randomly distributed (Fig 5). By using the root meansquared error we can calculate the deviations of the predictedfrom the observed values. The smaller the deviation the betterthe model. The value calculated is 0.05891. In the terms ofthis model this level of deviation is judged to be acceptable.Given all the results of the tests, the model has proved to bea robust and well specified model.In summary, all the explanatory variables showedsignificant t-ratios, and the coefficients had the expectedsigns, the Durbin h statistic was 1.57 showing that there was noautocorrelation. The R 2 was 0.94 and R squared adjusted was0.92.^Therefore the model can be assumed to be valid asspecified.50Observed values ^ Predicted Values-0Utibtil-ilft.0 AND PKEDIGTED1970-19905045-40-35-30-25-20-15-10-5 II^it^ III2 3 4 5 6 7 8 9 10 11 12 13 1415 16 1718 19 20 21' 22 23ObservationFig 4Plot of Residual Errors2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23Observation10.80.60.4-0.4-0.6-0.84.5 Assessment of Data used: (Appendix I)Before discussing the conclusions that can be drawn fromthe results of this model it is important to give an assessmentof the data used. The most important data sources are theMinistry of Lands Agriculture and Rural Resettlement(MLARR),Agricultural Marketing Authority (AMA), The Department ofAgricultural Economics, University of Zimbabwe and The Commer-cial Grain Growers Association of Zimbabwe. Other possiblesources are FAO and World Bank publications. CIMMYT, Mexico hascommissioned research into the Zimbabwe wheat industry and Ihave access to their publications.The data on prices is very reliable since most of theagricultural commodity prices are set by the Ministry ofAgriculture and I used their publications and consulted withthem to confirm the data. I am also confident that the produc-tion data I am using is quite reliable since large scalecommercial farmers usually give comparatively accurate informa-tion.The only data that could not be confirmed was the warperiod 1974-1979. I did not however, observe any significantdivergence in the data to warrant the inclusion of dummyvariables to take account of that period.4.6 Discussion of Regression Results:1). Lagged AcreageQuite significant with a t-ratio 5.71, the lagged acreage53variable had a positive sign showing a positive correlation withthe area planted to wheat. The estimated coefficient of thelagged acreage (1-r) was 0.53, therefore the area adjustmentcoefficient r was 0.47. An area adjustment coefficient betweenzero and one implies underadjustment of planted acreage30. Thisvariable was very stable throughout the 4 equations, showinghigh t-ratios in all cases.2). Price of Wheat: The t-ratio for this variable was 2.03 and the calculatedelasticity at means was 0.11, showing that the price supplyelasticity of wheat is very low. The results were also verystable throughout the equations.The low elasticity at means of the price of wheat variableshows that the price of wheat is not highly significant indetermining producer response in wheat production. Raising theprice of wheat is therefore not sufficient incentive to increasewheat output in Zimbabwe.3). Price of Maize Maize is the major substitute crop to wheat competing for waterrather than land since wheat is grown in the winter and maize inthe summer. This variable showed a negative sign which is to beexpected since the acreage planted to a crop is inversely30Behrman "Supply Response in Underdeveloped Agriculture: A CaseStudy of Four Major Annual Crops in Thailand, 1937-1963" (1968)54related to the price of a substitute. It showed a significantt-ratio -2.07 and a calculated elasticity at means of -0.41. Thecoefficient sign was correct in all 4 equations.These results imply that the producer price of maize has amore significant influence on the acreage planted to wheat thanthe price of wheat. This is as true for wheat as it is forother agricultural commodities in Zimbabwe. The price of maizeis used as a barometer for setting prices, because of its weightin consumer expenditure and the high proportion of land andother productive resources dedicated to it by producers.4). Yield: Since the yield variable showed a consistently insignificantt-ratio, it was dropped from the final equation. As yieldimprovement is mostly a result of technological innovations overtime, the T trend was expected to pick up the effects of yieldon the area planted to wheat. The yield variable also showedhigh pairwise correlation with the cost of irrigation variable.This was to be expected since yield improvement is constrainedby the availability of water.5). RainIntuitively, I expected the rain to have a high elasticity atmeans since it is a major factor in agricultural production ina drought prone country like Zimbabwe. One would expect that ina year with good rainfall there would be more water available55for irrigation and therefore more land planted. Thus theelasticity 0.27, which implies a 27 percent increase in plantedarea as a result of a 100 percent increase in rainfall seemsreasonable.6). Cost of Irrigation: The cost of irrigation should be inversely related to theacreage planted so we expect the estimated coefficient to benegative. The cost of irrigation variable showed a significantt-ratio at -2.58 and an elasticity at means -0.25.7). Time A priori, it would be hard to predict the sign on the estimatedcoefficient since the time trend is expected to pick up thetrends in all the variables such as the yield factor, inputprices, etc. which have not been included in the model. Thetime trend had a significant t-ratio at 1.41 and the elasticityis Price Supply Elasticities:One of the objectives of this study is to estimate theprice supply elasticity of wheat in Zimbabwe. Using the resultsof the regression we can calculate the values of the reducedform coefficients, which are then used to calculate the shortrun and long run supply elasticities. From the estimatedcoefficient of lagged acreage we calculated r (p 55).56The calculated elasticities were long run elasticityEft = 0.43, calculated as follows:Eh_ = (aAt/aPt) * (Pt/At) + a"( (At -a0/a1) * (1/A) }= (aiAt - aiao) / aiAt = 1 - (a0 / At)= 1 - (18925/32895) =^0.43 where:E lr - longrun elasticitycrAt - change in acreage^oPt - change in priceAt - acreage^ Pt - priceand short run elasticity Esr =0.11. To date none of the studieson the wheat industry in Zimbabwe have attempted to estimate theshort and long run supply elasticities. Longmire (1986)estimated the demand elasticity, and Bond (1983)31 carried outa study on nine Sub-Saharan African countries and gave theaverage elasticities of wheat as supply 0.18 and demand 0.21.Table 6 is a comparison of the elasticities from other countrieswith my own results.31 Bond M.E. "Agricultural Responses to Prices in Sub-SaharanAfrican Countries" International Monetary Fund Vol 30 (1983)57Table 6^Comparison of Supply and DemandElasticities of WheatAuthorLongmire et alCountryZimbabweEs Ed0.20Askari & Cummings Punjab 0.10 0.50-_^It West Pakistan 0.33 0.67Bond Ghana 0.20 0.42__^II Kenya 0.10 0.37Own results Zimbabwe 0.174.8 Conclusionsfour equations of the specified model were regressed, andeach of these showed consistent estimated coefficients, withexpected signs. The R-squared and t-ratios were also stable inall the equations. Graphing the residual errors of the chosenmodel did not exhibit distinct patterns, thus showing lack ofspecification bias. A plot of the observed and predicted acreageshowed the existence of close correlation between the two. Itcan be concluded therefore, that the model was valid and robustas specified.The calculated price supply elasticity 0.11 is well withinthe average elasticities estimated by earlier research on otherdeveloping countries (Behrman 1968, Askari and Cummings 1976)and in other Sub-Saharan African countries (Bond 1983).59Chapter 55.0 POLICY SIMULATION:In this section supply and demand elasticities will beused to model the impact of current policy interventions andthree alternative scenarios on the wheat industry. Threeimportant policies relevant to the wheat industry have beenidentified; the producer price of wheat is consistently keptbelow import parity while that of export commodities are keptabove export parity, and a subsidy on wheat to the millers hasbeen maintained to keep consumer prices of wheat and wheatproducts low, while rationing of foreign currency limits theamount of wheat that can be imported into the country. Changesin these policies will be simulated in the original model todetermine the impact of these changes.5.1 Price Policy Analysis: Theoretical PerspectivesGovernment economic policies influence rural urban terms oftrade, which are in turn a major factor in determining incen-tives to increase agricultural output while simultaneouslysignalling about the relative costs of food. Producer incen-tives can be raised in two ways: higher output prices or lowerinput costs.The rural-urban terms of trade are influenced by two setsof policies;i)^macro-economic policies such as foreign exchangerates, interest rates and wage rates60ii) sectoral policies such as subsidies and/or taxesand other trade policies that drive a wedgebetween the world price of a product and itsdomestic price.Three forms of policy intervention are used in the wheatsector in Zimbabwe; the producer price of wheat is consistentlykept below the world price, and a subsidy on imported wheat ismaintained to keep the consumer price of wheat products low,while rationing of foreign currency limits the quantitiesavailable in the country.This study is concerned with how these policies affect thewheat industry. The government of Zimbabwe has always used thepricing mechanism to influence the production and consumptionpatterns in the agricultural industry. Price policy interventionaffects the four food policy objectives in the following ways:1) it affects economic growth by the extent of efficiencylosses;2) income distribution by the direction of income trans-fers;3) food security by increases or decreases in quantitiestraded internationally;4) and nutritional status by the income transfers pricepolicies effect to or from consumers.615.2 Effects of Policy Intervention:This section will analyse the current situation in thewheat industry in Zimbabwe i.e how current pricing policyaffects the industry. This will be followed by an analysis ofthe industry in a free trade situation which will be used as abase case to highlight the effects of policy intervention.In 1990 the producer price of wheat i.e the price at whichthe government through the Grain Marketing Board buys fromproducers was set at $460/tonne while the consumer price i.e theprice at which the government again through the Grain MarketingBoard sells to the millers was set at $550/tonne. Production andconsumption quantities in the same year were 242 166 tonnes and295 916 tonnes respectively. It is important to note thatwhereas production output is a result of producer price control,consumption is a result of a combination of two differentpolicies: 1) consumer subsidy2) government rationingThe government imposes a limit on the quantity of wheat importedinto the country by restricting the foreign currency allo-cated32, imposing a limit therefore on the amount of wheatavailable in the country. This makes wheat products particularlybread affordable but not easily available, a factor whichexplains the persistent shortages of bread and other wheat32Agricultural Marketing Authority "Economic Review of theAgricultural Industry in Zimbabwe" (1988)62products clearly observable in the urban areas of Zirababwe33.In the same year 53 750 tonnes were imported at a price of$620.37/tonne, the border price. Fig 634 illustrates the com-bined effects of the policy interventions on the wheat industryin Zimbabwe. We assume that without government intervention theproducer price of wheat would equal the border price at $620.37-/t. In a free trade situation the domestic supply is Q1 whiledomestic demand is Q2. The difference between Q2 and Q1 representsthe import requirements under free trade i.e in the absence ofpolicy intervention.The control on producer price of wheat results in areduction of supply to Q3. At the subsidised consumer price,without rationing we assume the demand for wheat should be Q4 atwhich the import requirement would be the difference betweenQ4 - Q3^Rationing effectively reduces consumption of wheatfrom Q4 to Q5, thereby reducing import requirements from Q4-Q3 toQ5-Q3, respectively. The total subsidy paid by government is:(Pw - Cp) x (Q5 - Q3)Relative to free trade, producers lose ACKL which ispartly transferred to consumers and to government. The govern-ment gains FGKL by paying producers less ($460/t) than theconsumer price ($550/t), and ACFH which is transferred to con-MLongmire J.,P. Ngobese and S. Tembo if Wheat Policy Options inZimbabwe and SADCC Countries" Working Paper Department ofAgricultural Economics and Extension, University of Zimbabwe(1988)34Fig 6 is not drawn to scale63sumers. The total deadweight loss equals triangle GHL, whichrepresents the profits lost by producers through output reduc-tion plus area BCGH, part of the government subsidy whichbenefits no one.There are other economic costs besides the cost of the budgetsubsidy. Although consumers clearly benefit by this pricesubsidy their total gain is less than the sum of the budgetsubsidy and implicit transfer from farmers. The difference isdue to the efficiency losses, caused by the price distortionsintroduced by the wedge between domestic and internationalprices, and are experienced by both producers and consumers.On the consumer side, the demand curve represents the priceconsumers are willing to pay for each quantity, so a lower priceproduces benefits for consumers who were willing to pay a higherprice but no longer have to. The consumer surplus is reflectedby the area under the demand curve but above the consumer price.In fig 6 the change in consumer surplus as a result ofsubsidised imports is measured by the area ADJF. Rationinghowever, reduces consumer surplus by the triangle MJN to ADMNF.64Fig 6^The Effects of Policy Intervention:BL , FI1/4„,m4,...N.hGt_.HIN1ii1iIIIJ,4..k*s44,4.44ItV03^Q1^Qe^Q2^04'05655.3 Policy Simulation Exercise:The basic model applied shows linear supply and demandcurves and how the prices and quantities are related. Thegeneral formula for a linear demand curve with quantity as thedependent variable:Q = b + m(P)However, in economics the inverse of this formula is used i.eP = (Q-b)/mUsing the calculated supply elasticity 0.11 and the demandelasticity calculated by Longmire et al 0.20 changes in policywill be simulated into this basic model to show their effects onvarious factors in the industry. Using data from variouspublications of the Grain Marketing Board, the AgriculturalMarketing Authority on producer and consumer prices, productionand consumption levels and import requirements, and Ministry ofTrade and Commerce on government revenue gains and losses andforeign currency allocations, the effects of policy interventionon the most important factors were considered.Table 7 shows the results of the policy simulation exercise.Base Case - This scenario assumes a free trade situationi.e a situation in which the domestic price of wheat equalsthe border price. At that price domestic supply equals255 766 tonnes and consumption is 288 916 tonnes andimports are 33 150 tonnes. The foreign currency spent onwheat imports is about $20.553 million. In this scenariothe government does not incur any additional costs in terms66of efficiency losses or subsidies.Scenario I -shows the current situation in Zimbabwe. Atthe controlled producer price domestic production is242 166 tonnes while consumption at the subsidised consumerprice, but restricted foreign currency allocations is295 916 tonnes increasing import requirements relative tothe base case to 53 750 tonnes at a cost of $33.325million.In the current situation producer loss as a result ofthe difference between the world price and the domestic setprice, in addition to output reduction is $42.010 millionwhile the consumers gain by the amount equivalent to thesubsidy and part of the producer loss $26.632 million. Thegovernment subsidy equals $3.762 million while the govern-ment gains upto $21.794 million, the difference between theset producer price and the consumer price. Current policyintervention in the wheat industry, while creating profitof upto $18.032 million for the government taxes producersand does not create incentives to increase supply.Uncompensated losses i.e part of producer loss GHL and BCGHpart of the government subsidy which benefits no one equal$1.088 million.Scenario II - shows the effect of imposing self-sufficiencyon the industry i.e quantity demanded equals the quantity67supplied, assuming government adopts a policy of noimports. Relative to the base case producer gain is PePCA($46.382 million) while consumer surplus decreases to$2.917 million. The higher price will result in an increasein the production of wheat, while decreasing the domesticdemand of wheat. The likely consumer resistance to the highprice increases of wheat products make this an unlikelypolicy.Scenario III - shows the effects of maintaining producerprice control but removing both the consumer subsidy, andthe rationing on foreign currency i.e the producer pricewill remain at $460/t while the consumer price increases to$620/t. Relative to the free trade scenario domestic outputdecreases to 242 166 tonnes while consumption equals288 916 tonnes. The import requirements are 46 750 tonnescosting $28.985 million in foreign currency.There does not seem to be an easy low-cost means to expandwheat production in the short run. Table 6 summarises thewelfare effects of policy intervention in Zimbabwe, followed bythe effects in the event of policy changes.An immediate transition to self-sufficiency would bedesirable from the producers' point of view but this woulddefinitely result in consumer resistance. Moving towards freetrade through decontrol of both the producer and consumer prices68followed by a gradual build up towards self sufficiency, throughgradual price increases seems the most viable option in the longrun.69Table 6^(1) EFFECTS OF CHANGES IN PRICING POLICYVariables Base Case Scenario I^Scenario II Scenario IIIAcreage (ha) 52091^49321 55256 49321Producer price ($/t) 620 460 796 460Import price ($/t) 620^620 620Consumer price ($/t) 620 550 796 620domestic prod'n (t) 255766^242166 271310 242166domestic cons'n(t) 288916^295916 271310 288916Imports(exports)(t) 33150^53750 0 46750Cost of imports($mln) 20.553^33.325 0 28.985Subsidy($eln) 0^3.762 0 0Base case assumes free trade,i.e no policy interventionScenario I presents current situation: producer and consumerprice control and rationing of foreign currencyScenario II imposes self sufficiency i.e demand =supplyScenario III maintains producer price control,but removes consumer subsidyTable 6 (2)^Welfare Effects of Pricing Policy (fen)Base Case Scenario I^Scenario II Scenario IIIProducer gain (loss)(ACKL)^39.834 (39.834) 88.548 (39.834)Consumer gain (loss)(AEIF)^(20.224) 20.469 (94.117) (20.469)Consumer Subsidy(Pw-Cp)*(05-03)^0 3.762Govt gains(FUL)^0 21.794 38.746Uncompensated losses(GNI_ + BCH)^0 1.088Cost of^Imports(Pw*(05-03) 20.553 33.325 28.985Pw-Border priceCp- Consumer price05- Domestic consumption03- Domestic production705.3 Sensitivity AnalysisSensitivity analysis was used to test the robustness ofresults by simulating elasticities from other studies. Variouslevels of elasticities based on the study by Bond on Sub-SaharanAfrican countries34 were tried on both the demand and supplyparameters. In the base case my own calculated supply elastic-ity of 0.11 and Bond's demand elasticity -0.20 were used. Ithen proceeded to use higher demand elasticities of -0.54 and -1.1 while holding the supply elasticity constant. Higher supplyelasticities 0.37, 0.54 and 1.00 were also simulated whileholding the demand elasticity constant. These elasticities werechosen because they were the results of studies based on Sub-Saharan African countries which I perceived to have similareconomic and agricultural conditions as those prevailing inZimbabwe.A priori, higher supply elasticities i.e higher priceresponsiveness by producers should result in an increase inoutput as the producer price of wheat increases, while higherdemand elasticities should result in a decrease in the demand asprices go up. Table 8 shows the result of the sensitivityanalysis.Relative to the base case, changing the demand elasticityfrom -0.20 to -0.54 while holding the supply elasticity constantdecreased the demand for wheat, which in turn reduced import34 Bond M.E. "Agricultural Responses to Prices in Sub-SaharanAfrican Countries" International Monetary Fund Vol 30 Dec (1983)71requirements from 33 150 tonnes to 21 250. Based on the importprice of $620/t for 1990 this cost the government $7.738 millionin foreign currency compared to $20.553 million in the basecase. A demand elasticity of -1.1 resulted in import require-ments of only 1 650 tonnes which would cost only $1.023 millionin foreign currency, compared to the base case.Changing the supply elasticity from 0.11 to 0.37 whileholding the demand elasticity constant resulted in an increasein output from 255 766 tonnes in the base case to 271 766tonnes. Import requirements therefore decreased to 17 150 tonnesand a savings of $10.612 million in foreign currency. A supplyelasticity of 0.58 almost brings the country to a situation ofself-sufficiency, with domestic supply almost satisfyingdomestic demand. Unitary supply elasticity resulted in surplusof upto 33 250 tonnes. The sensitivity analysis showed that theresults of this model were quite sensitive to changes inelasticity assumptions.7252091620620620255766288916331504932146062055024216629591653750Acreage (ha)^65614Producer price ($/t^620Import price ($/t)^620Consumer price ($/t^620domestic prod'n (t) 322166domestic cons'n(t) 288916Imports(exports)(t) (33250)^49321^83537^460^796620550^796242166^410166295916 27072653750 (139440)Table 8 Results of Sensitivity Analysis:Es=0.11 Ed= -0.20Variables^B Case^Scen I^Scen II Scen IIIEd=-0.20 Es=0.37Variables^B Case^Scen I^Scen IIAcreage (ha)Producer price ($/t)Import price ($/t)Consumer price ($/t)domestic prod'n (t)domestic cons'n(t)Isports(exports)(t)^55138^49321796^4600^620796^620270726 242166270726^2889160^46750Acreage (ha)^55349^49321^61981Producer price ($/t^620^460^796Import price ($/t)^620^620^0Consumer price ($/t^620^550^796domestic prod'n (t) 271766^242166^304326domestic cons'n(t)^288916^295916^270726Imports(exports)(t)^17150^53750^(33010)Es=0.11 Ed = -0.54^Ed=-0.20 Es=0.58Variables^B Case^Scen I^Scen II Scen III^Variables^B Case^Scen I^Scen IIAcreage (ha)^52091^49321^55138^49321Producer price ($/t)^620^460^796^460Import price ($/t)^620^620Consumer price ($/t)^620^550^796^620domestic prod'n (t)^255766^242166^270726^242166dosestic cons'n(t)^277016^295916^229496^320216Isports(exports)(t)^21250^53750^(41230)^78050Acreage (ha)^58771^49321^69166Producer price ($/t^620^460^796Import price ($/t)^620^620^0Consumer price ($/t^620^550^796domestic prod'n (t) 288566^242166^339606domestic cons'n(t)^288916^295916^270726Imports(exports)(t)^350^53750^(68880)Es=0.11 Ed = -1.1^Ed=-0.20 Es=1Variables^B Case^Scen I^Scen II Scen III^Variables^B Case^Scen I^Scen IIAcreage (ha)^52091^49321^55138^49321Producer price ($/t)^620^460^796^460Import price ($/t)^620^620Consumer price ($/t)^620^550^796^460domestic prod'n (0^255766^242166^270726^242166dosestic cons'n(t)^257416^295916^160616^345416Imports(exports)(t)^1650^53750^(110110)^10325073CHAPTER 66.1 Conclusions:Agricultural policy makers in Zimbabwe today face thedifficult question of what to do about the widening gap betweensupply and demand of wheat.^Even though Zimbabwe's wheatindustry is well developed by regional standards, domesticproduction has not kept pace with demand making importsnecessary, draining scarce foreign exchange and heighteningconcerns about national food security. Government policy inZimbabwe taxes wheat producers while subsidising the consumers,thus current policy acts as a disincentive to increased outputsupply on the one hand, while it encourages increased demand onthe other.^This study quantified the welfare effects andforeign exchange costs of current and alternative policyscenarios.Although studies from other countries show that wheatproduction is responsive to price incentives, the results ofthis study however show a very low short run price responsive-ness (0.11). Thus raising producer prices, without redressingall the other factors affecting wheat production such as costand availability of irrigation facilities, prices of substitutesetc, would have limited impact on total production.The calculated elasticity at means for the price of maizevariable which was included in the model to account for theprice of substitutes was -0.41, showing that for every 10percent increase in the price of maize the production of wheat74decreases by about 4 percent.The question for Zimbabwe is how to create the necessaryconditions to increase price responsiveness, i.e what policychanges are necessary to increase total supply of wheat. Theoverall conclusion is that there is not a simple low cost optionto redress the situation in the wheat industry in Zimbabwe. Thesituation calls for a review of all the policy instrumentscurrently in place, in addition to external factors such as theworld price of wheat.Current policy in the wheat industry taxes the producers inexcess of $39 million which is partly transferred to consumersand partly to government as revenue. Imports cost the countryabout $33 million in foreign currency. In essence the governmentdoes not really make a profit in the wheat industry because $33million in foreign currency at current bank exchange rates faroutweighs the profit made on the domestic market. The governmentpays out nearly $4 million as consumer subsidy while losing out$1.08 million in uncompensated losses.The first base case scenario in the last chapter assumes asituation of free trade i.e decontrol of both producer andconsumer prices, in addition to removal of the subsidy. Thisscenario resulted in a decrease in import requirements which inturn results in a decrease of about $13 million in foreigncurrency. Imposing self sufficiency in scenario II does awaywith the need to import. The government loses a source ofrevenue but make saves on the foreign currency in addition to75the subsidy. The third scenario, maintaining control on theproducer price, while removing the subsidy on consumer pricesand selling at the border price would not resolve the problem asthere continues to be high import requirements and continueddrainage of scarce foreign currency. Policy implications ofsome of the conclusions drawn from the results of the study aremade in the following section.6.2 Policy Implications:1)^The Macro Economy and Macro Policies: Comprehending the relationship between the food system andthe macro economy helps identify the policy issues and the rangeof choices available to policy makers. Currently policymakersoperate within an atmosphere of distorted macro policies, whichtypically include rapid inflation, an overvalued exchange rate,minimum wages for an urban working elite, and depressed ruralincentives. This set of policies make rapid growth in agricul-tural output extremely difficult, while it simultaneously skewsthe distribution of earned income. The only justification forthese policies is that they protect the short-run interests ofpoor people by keeping food prices low35. Schfer describes theeffects of these policies as follows:When macro policies are badly distorted, their cumulativeMMlambo K. "Exchange Rate Overvaluation and AgriculturalPerformance in Zimbabwe: 1965-1985", in Mudimu G.and Bernsten R,eds.,Household and National Food Security in Southern AfricaUZ/MSU Food Security Research Project, University of Zimbabwe(1989)76impact puts pressure on the economy for major policyreforms. As this pressure builds up, the options open topolicymakers are extremely limited: more investment inirrigation, a better agricultural research and extensionprogram, subsidies on fertiliser and certified seed. Thesecontribute to agricultural growth, but in the constrainingenvironment of distorted macro policies, such programs donot provide the basis for long run dynamic growth of ruraloutput and incomes, which is the essential base for a foodpolicy that simultaneously increases food production whilereducing hunger.36A combination of factors, notably sluggish growth inZimbabwe's major agricultural and mineral exports along withdepressed world prices, has in recent years reduced the nation'sexport earnings and precipitated a severe foreign exchangeshortage. The government has responded to this crisis byinstituting a set of foreign exchange controls, including asystem of rationing foreign exchange to essential industries37.One effect of this policy has been to allow the government tomaintain an overvalued currency. Currently the officialexchange rate does not fully reflect the real value of a unit offoreign currency to the Zimbabwean economy38. Economists ingovernment and at the University of Zimbabwe estimate that theZimbabwean dollar is overvalued by as much as 30 % in relationto the US dollar, based on differential rates of inflation36 Schafer, H. "Real Exchange Rates and Economic Performance:TheCase of Sub-Saharan Africa". Unpublished Ph.D. Dissertation, Department of Economics and Business, North Carolina StateUniversity at Raleigh (1989)37 World Bank "Zimbabwe: An Industrial Sector Memorandum".Industrial Development and Finance Division, Eastern andSouthern Africa Region. Washington D.C: 1987m Ibid77between Zimbabwe and its major trading partners (O'Driscoll1987). Consequently if adjustments are not made to correct fordomestic currency overvaluation, efficiency will be biased infavour of import-intensive activities.2) Price Decontrol: The Government of Zimbabwe should review if the reasons forwhich the policy to control agricultural pricing apply to thewheat industry. Certain agricultural commodities such astobacco, tea, coffee and sugar are not controlled. Whereascontrolling the producer prices of staple foods such as maize,millets, and groundnuts might have been necessary, firstly as ameans to ensure income transfers to the peasant sector andsecondly to ensure that food remains affordable to the majorityof the poor people, both these reasons do not apply in the caseof wheat. Wheat is produced by the large scale commercialfarmers who have proved to be economically viable, and do notneed Government to guarantee their incomes. Furthermore, thepolicy as it stands currently taxes the farmers and has acted asa disincentive to increased output.The base case scenario, free trade and the self-sufficiencyscenario have both shown that an increase in the producer priceof wheat would result in increased output, compared to scenarioII and four in which producer price control is maintained.783) Producer Price Increase Increasing the producer price in the current situationwould result in increased income transfers to the large scalefarmers, which would be against government desired policy. Whatseems viable, however is to expand wheat production base bymaking it possible for small scale and peasant farmers to enterinto wheat production through equitable distributionof the fertile granite based light sandy and loam soils whichare currently dominated by white commercial farmers as a resultof the pre-independence land policies.Since wheat already occupies upto 95 % of the winterirrigated area on wheat farms, there is little potential forfurther substitution of land to wheat from other winter crops onexisting wheat farms. There is scope however for substitutingwater away from supplementing summer crops to wheat. Inaddition some farmers currently not growing wheat may be inducedto its production if the prices of export crops declinedrelative to wheat. This however may go against governmentpolicy to maintain equitable income distribution within andamong the sectors.4) Expansion of Wheat Production Base: Presently, wheat is produced by the large scale commercialfarmers only because producers in the other sectors do not havethe capital to invest in irrigation facilities. With regard toexpansion of irrigation water supplies, there appear to be no79easy low-cost options. The increasing real cost of dam construc-tion in the future will mean that irrigation will be increasing-ly expensive, and other demands for water will tend to reinforcethis. In addition to the high cost of irrigation, irrigationequipment costs and pumping costs are very high in Zimbabwe.The government has two possible options,1) set the producer price of wheat very high to getfarmers to invest in irrigation facilities.2) Maintain current producer price control, but invest inirrigation facilitiesThe results of my study showed that the difference betweenthe producer and consumer price on the domestic market repre-sents a source of revenue for the government. After paying theconsumer subsidy the government still made a profit of upto $16million. (see Table 6)This profit could be invested in irrigation facilities inthe rural areas to enable peasant farmers to grow wheat.Although the model cannot directly evaluate the effectiveness ofinvesting in irrigation facilities relative to producer trans-fers it is assumed that this would have the added advantage ofincreasing the viability of rural farmers by lessening theirdependence on rainfall, even for summer crops.5) Irrigation Fund Policy: Irrigation costs can be broadly divided into two cat-egories: the cost of water storage (e.g dam construction)and the80cost of installing an irrigation system (pipes, fittings andsystem assembly). The cost to farmers of irrigation is directlyaffected by several government policies. Although most irriga-tion pumps are locally manufactured, those that are imported areassessed a tariff of 20 percent. In addition all pumps, locallymanufactured or imported are subject to a 20 percent sales tax39Since 1965 the government has put in place a subsidisedgovernment credit program targeted specifically at wheatproducers to cover irrigation investment costs. First estab-lished in 1965 then reintroduced in 1985 after having beensuspended for several years, the National Farm Irrigation Fund(NFIF) extends low cost finance to finance irrigation develop-ment, with the condition that any area developed using NFIFfunds be used for wheat production for the duration of the loan.This condition was set to ensure that farmers would not use NFIFloans at subsidised interest rates to plant crops other thanwheat. The NFIF loan rate currently stands at 9.7% per annumcompared to commercial lending rates at 16-18 percent.Investment in irrigation might increase if farmers coulduse the area irrigated with NFIF loans to grow other crops,especially high value export crops such as tobacco and cotton.Farmers are then able to rotate summer and winter crops therebyincreasing the returns per dollar invested in irrigation. The39 National Planning Agency, Ministry of Finance, EconomicPlanning and Development, Government of Zimbabwe "Minute onEconomic Appraisal of Irrigation Projects" Government Printers(1988)81farmers then could base their ability to pay back loans on theperformance of two or three alternative crops, rather than onwheat only.6) Increased Imports: Increasing wheat imports may be a viable option to increaseavailability of wheat. Irrigation could be used to increase theproduction of export crops such as maize, cotton and tobacco.The foreign currency earned through export commodities could beused to pay for commercial wheat imports. To date most of thewheat imports have been arranged as barter deals especially formaize exports sent to Mozambique by international organisationsas food aid.The general decline in commodity prices on the interna-tional market has made this option less attractive, and this isexacerbated by the high costs of transport and the dependency onneighbouring countries (South Africa, Mozambique) for inlandtransportation. The recurrent droughts also make this a riskyoption as there is not enough maize to use for barter during thedrought.6.3 Issues for Future Research:The prices of many agricultural inputs in Zimbabwe areinfluenced directly or indirectly by government policies, suchas taxes, subsidies, import tariffs, export controls, quotas,marketing regulations, minimum wage legislation and exchangerate controls. The following section reviews selected government82policies on the fertiliser and crop chemical industries inaddition to varietal and yield improvement of wheat.Fertiliser:The fertiliser industry in Zimbabwe consists of fourprivate companies (two importer/manufacturers and two distribu-tors). Because fertiliser is classified as an "essential commod-ity", its pricing structure is subject to government regulation.Pricing of fertiliser is determined at cabinet level, based onrecommendations developed through negotiations involvinggovernment ministries and industry representatives. The policyof cross-subsidising fertilisers was removed in 1975, resultingin a substantial increase in the prices of fertiliser.Fertiliser prices have risen more rapidly than crop prices. Thenitrogen:wheat price ratios has since been maintained at 4:140.Since 1986 retail fertiliser sales were exempted fromsales tax, however fertiliser imports and imports of materialsused in manufacturing fertilisers are subject to an importtariff of 20 96.41Crop ChemicalsCrop chemicals (such as herbicides, fungicides, andinsecticides) are imported into Zimbabwe by one of several" Reserve Bank of Zimbabwe Quarterly Economic and Statistical Review  9(4) December 198841 Ibid83authorised chemical distributors, who distribute them to farmersat government regulated prices. The official pricing structurefor chemicals is quite similar to that for fertilisers. Retailsales are exempted from sales tax, while all imports aresubjected to a 20 percent import tariff42.The price controls, on the prices of fertilisers and cropchemicals coupled with the import tariff make it unprofitablefor manufacturers with the result that there are very fewoperators in these two industries. A lot of times there areshortages of fertilisers and chemicals at a time when farmersneed them, because of the limit on the foreign currency madeavailable to fertiliser companies to import chemicals.Varietal Improvements On-going varietal improvement is probably one of the leastexpensive methods of expanding wheat production. The estimatedincrease associated with varietal improvement and related cropmanagement has been sizable, close to 100 kg/ha per year. Withregard to research on new varieties the criterion should bewater efficiency and for summer varieties resistance to dis-eases.Yield ImprovementThe scope for yield increase through additional fertilisersand chemicals or through further adoption of new crop management42 Ibid84methods seems limited since farmers are already applying closeto the economically optimal levels of these inputs.°Given that water is the principal limiting factor, a highpriority area for research is analysing the response of wheat todifferent amounts of water applied, and to different timings ofirrigation. Related research should be undertaken to evaluatealternative irrigation technologies and how they affect theyields. It is quite common in Zimbabwe to have on average 13irrigations which seems excessive compared to countries likeMexico, Pakistan and India with irrigations"Product Development: Present trends such as increased urbanisation indicate thatthe demand for wheat will continue to grow in Zimbabwe. Thereis need therefore to control the rate of growth of the demandfor wheat products particularly for bread through correctpricing policies and food product development. By eliminatingthe subsidy on wheat, and increasing its price to the same levelas maize products or other staples, it may be possible to slowthe growth in consumption of bread in the long run.Similarly, new maize product development and furtherblending of flour, e.g with maize and\or sorghum, would helpo Whingwiri E.E. "A Survey of Commercial Wheat ProductionPractices in 4 Provinces of Zimbabwe". Zimbabwe Agricultural Journal Vol 82 (4)(1985)44 Longmire J., P. Ngobese and S. Tembo "Wheat Policy Options inZimbabwe and SADCC Countries" (1988)85slow down the demand for wheat. Research on new maize andsorghum products which might substitute for wheat should beundertaken. A number of maize products in the Americas haveconvenience properties and offer attractive alternatives towheat products. Research into production of other cereals suchas triticale45 which is more disease-tolerant than wheat, andits flour can readily be blended with wheat flour should begiven priority.45 Anfrae G., B. Beckman "The Wheat Trap: Bread and Underdevelop-ment in Nigeria" London, Zed Press (1986)86Appendix IStatistics on Wheat in ZimbabweAreaYear^(ha)WPN(t)YWT^WCN(t/ha(t)IMP(t)PWT($/t)CPW($/t)CPI^RNF80=100 (mm)PIR^PMZ$/ha^($/t)1970 11361 41695 3.67 41695 0 63 80 0.484 403 115 201971 14788 54716 3.70 85985 31269 69 80 0.499 600 204 301972 21322 72068 3.38 100827 28759 69 80 0.513 765 235 261973 21151 80374 3.80 124252 43878 69 80 0.529 480 200 361974 23680 79328 3.35 130402 51074 80 100 0.564 540 120 401975 26745 106713 3.99 122545 15832 110 100 0.621 500 2000 371976 31250 134063 4.29 161228 27165 121 112 0.689 510 540 441977 36138 141300 3.91 191701 50401 123 113 0.76 498 414 521978 37881 161752 4.27 221655 59903 110 113 0.803 476 643 531979 41599 182620 4.39 189657 7037 115 121 0.949 560 989 611980 41834 207915 4.97 221681 13766 135 134 1 678 1222 851981 41872 228202 5.45 250031 21829 165 157 1.131 650 1289 1201982 44132 251111 5.69 272111 21000 190 169 1.252 403 1380 1201983 37904 204682 5.40 307432 102750 220 239 1.541 464 1369 1201984 36042 207242 5.75 328737 121495 250 285 1.852 746 1598 1401985 32707 176618 5.40 219134 42516 285 323 2.009 695 2200 1801986 32878 189049 5.75 210702 21653 300 358 2.241 422 1660 1801987 44808 241963 5.40 333319 91356 330 378 2.344 744 1660 1801988 43067 245482 5.70 309514 64032 365 426 2.609 460 1750 1951989 46298 262510 5.67 300267 37757 400 480 2.944 600 1864 2151990 49321 242166 4.91 295916 53750 460 550 3.004 685 3600 225Notes:Area- Acreage planted to wheatYWT- Yield of wheatWCN- Wheat consumptionIMP- Wheat importPWT- Producer price of wheatCPW- Consumer price of wheatCPI- Consumer price indexRNF- Mean annual rainfallP1R-Price of irrigationPMZ- Price of maizeSource: Agricultural Marketing Authority (various isues)Central Statistical Office (various issues)87Appendix II^Statistics on Maize in ZisbabweYear MaizeProd'n(t)MaizeCons'n(t)Producer SellingPrice^Price(Sit)^(Sit)CPI80=1001970 980000 610686 20 4.1 0.4841971 1809148 1113709 30.05 4.17 0.4991972 2266523 1420725 25.88 4.19 0.5131973 967395 550363 36.37 4.19 0.5291974 2124774 1336856 40.11 43.24 0.5641975 1746683 1006922 37 51.54 0.6211976 1786123 958532 44 51.54 0.6891977 1655222 941065 52 51.54 0.761978 1618395 877026 53 57.07 0.8031979 1149842 802465 60.5 63.89 0.9491980 2813150 969965 85 89 11981 2728640 1538168 120 137 1.1311982 1785800 1525545 120 137 1.2521983 844000 860000 120 157 1.5411984 1283000 845000 140 177 1.8521985 2952000 1130000 180 222 2.0091986 1828000 1480393 180 222 2.2411987 1677600 990327 180 222 2.3441988 402537 933073 195 245 2.6091989 1959870 933073 215 285 2.9441990 2115657 1062500 225 305 3.004Source: Agricultural Marketing AuthorityReport and Accounts Year Ending 31 March(various issues)88BIBLIOGRAPHYAnfrae, G. and B. Beckman (1986). The Wheat Trap: Bread andUnderdevelopment in Nigeria. London, Zed Press.Askari H.,J.T. Cummings (1976) "Agricultural Supply Response: ASurvey of the Econometric Evidence" (New York)(1977)"Estimating Agricultural Supply Response with theNerlove Model: A Survey," International Economic Review,Vol 18 (1977) pp 256-92)Behrman. J.R.(1968) Supply Response in Underdeveloped Agricul-ture A Case Study of Four Major Annual Crops in Thailand, 1937-1963, North Holland Publishing Company, AmsterdamBond M.E(1983) "Agricultural Responses to Prices in Sub-SaharanAfrican Countries" IMF Staff Papers Vol 30 No.4 DecemberPP. 703-726Byerlee, Derek (1983). "The Increasing Role of Wheat Consump-tion and Imports in The Developing World". Working Paper5/83, Economics Program. Mexico, CIMMYT.Byerlee, Derek (1985). "Avoiding The Wheat Trap: InappropriatePolicies Change Dietary Habits", CERES. Sept/October, PP.20-25.Byerlee, D. (1985). "Wheat In the Tropics: Economic and PolicyIssues" IN: Wheats for More Tropical Environments: Aproceedings of the International Symposium. Mexico,CIMMYT, PP 303-315.Byerlee, Derek and Jim Longmire (1986) Comparative Advantage andPolicy Incentives for Wheat Production in Rainfed andIrrigated areas of Mexico. Mexico, CIMMYT, EconomicsProgram, March.CIMMYT. (1983). World Wheat Facts and Trends. Report two: AnAnalysis of Rapidly Rising Third World Consumption andImports of Wheat. Mexico, CIMMYT.CIMMYT (1985). World Wheat Facts and Trends. Report Three: ADiscussion of Selected Wheat Marketing and Pricing Issues in Developing Countries. Mexico D.F.CIMMYT (1989). Wheats for More Tropical Environments: AProceedings of the International Symposium.^Mexico,CIMMYT.89Dalrymple, D.G. (1988) "Development and Spread of High YieldingWheat Varieties in Developing Countries." Bureau forScience and Technology, Washington D.C. USAIDGrain Marketing Board (Various Issues) Report and Accounts: YearEnding March,31st Harare, Government Printer.Golliger, D.E. (1985). "Wheat Research in Botswana," TheBulletin of Agricultural Research in Botswana No. 4, pp. 4-45.Gujarati D.N.(1988) Basic Econometrics 2nd Edition McGraw HillBook CompanyKydd, J. and A. Hewitt (1986). "The Effectiveness of StructuralAdjustment Lending: Initial Evidence from Malawi," WorldDevelopment Vol. 14(3); 347-365.Longmire, J.L., P.Ngobese, S. Tembo (1986). "Wheat PolicyOptions in Zimbabwe and SADCC Countries:" CIMMYT, Econ-omics Program, Mexico and Department of AgriculturalEconomics, University of Zimbabwe.Mashiringwani, N.A Zimbabwe Wheat: Trends in Production andConsumption and the Role of Variety Improvement CropBreeding Institute, Depertment of Research and SpecialistServices Publications (1987)Ogungbile, .A.O. (1985). "The Relative Priority and Economicsof Growing Wheat in Nigeria", IN: Wheats for More Tropical Environments: A Proceedings of the International Sympo-sium. Mexico CIMMYT, pp. 327-331.Otter, S. and J.T. Ritchie (1986). "Validation of the Ceres -Wheat Model in Diverse Environments", IN: Wheat Growth andModelling. Edited by W. Day and R.K. Atkin, New York,Plenum press, pp. 307-310.Pearson, S.R., J.D. Stryker, C.P. Humphreys and other (1981).Rice in West Africa: Policy and Economics. Stanford,Stanford University Press.Ritchie, R.T. (1985). " A User-Orientated Model of the SoilWater Balance in Wheat", IN: Wheat Growth and Modelling,Edited by W. Day and R.K. Atkin, New York, Plenum Publish-ing Co, pp 293-305.Ritchie J.T. (1986). "Using Computerized Crop Models forManagement Decisions", Proceedings of the International DLG- Congress for Computer Technology, Hanover, Fed. Rep. ofGermany, pp. 27-41.90Shaffer, James (1970). "On the concept of Subsector Studies,"Paper presented at a Seminar at the University of Florida,Gainsville, Florida, March 30.White K.J., Wong S.D., Whistler D. Haun S. SHAZAM EconometricsComputer Program User's Reference Manual Version 6.2,McGraw Hill Book Company (1990)Watermeyer, J.M. (1981) "An Outline of the History and Develop-ment of Irrigation in Zimbabwe" Development Magazine April1986, pp 35-39World Bank (1984) "Irrigation - Zimbabwe Subsector Review" WorldBank Working Paper, Washington D.0Worthington V.E.,Burt O.R."Wheat Acreage Supply Response in theUnited States Western Journal of Agricultural Economics Vol13, No.1 July 1988 pp 100-111Whingwiri E. E., D. Mataruka and C. Ntungakwa (1984). "A Surveyof Commercial Wheat Production Practices in theMazowe/Bindura Area", Zimbabwe Agricultural Journal. Vol81(4): 139-141.Whingwiri, E.E. (1985). "A Survey of Commercial WheatProduction Practices in 4 Provinces of Zimbabwe in theWinter of 1984", Zimbabwe Agricultural Journal. Vol 82(4):105-108.ZamCan Wheat Development project (1977). "Zambia - Canada WheatDevelopment Project - Annual Research Report, 1977-1978",Lusaka.91


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